APIA Blog

RSS Feed

Quick Property Facts: OCR and Interest Rates

Thursday, March 08, 2012
We often get asked by newbie investors what the Official Cash Rate is and how it affects property investors.  

Leaving the nitty-gritty details to the real experts, the Official Cash Rate ("the OCR") can largely be explained thus: 

One of the key functions of The Reserve Bank Of New Zealand ("RBNZ") is to manage a sound a dynamic economy focusing one three key fundamentals: sustainable growth, stable prices, and full employment. For eight times a year, the RBNZ monitors these performance fundamentals by adjusting the OCR.  Primarily  to influence inflation, the OCR is also used to stimulate or cool the economy.  

When RBNZ lowers the OCR, Kiwi banks are encouraged to lower their interest rates on mortgages and loans in order to encourage lending.  Borrowing money becoming cheaper therefore spending and investment will increase.  There is also more money in the economy which has an effect of driving up prices.  

When RBNZ puts up the OCR, the reverse happens.  Higher mortgage, loan AND saving rates means that people are encourage to lower spending and increase saving therefore driving prices down and easing inflation.  When interest rates go up, overseas investors will be more likely to buy NZ dollars or invest here causing an initial rise in the exchange rate.  However, over time, the increase in interest rate can lower economic growth making Kiwi-Land a less attractive option for offshore investors. 

The main role of the RBNZ is to keep prices stable through inflation targeting.  The current target is to keep inflation between 1-3%.  The RBNZ is constantly gathering information about the economy and uses OCR to manage inflation. 

For us everyday folks the OCR is relevant insofar as the higher the interest rate the more conservative we have to be with our spending and the lower the interest rate the easier it is for property investors to expand our portfolios.


Recent Posts


Tags

How to data security auckland first home buying smoke alarm return rent increase ird cash-flow meth contamination debt to income cgt trust government financial advisers act clnz sale and purchase robert kiyosaki HHS Level 4 inspection investor anz boarding house Zodiak Management Standards New Zealand legal Q&A productivity interest only housing affordability will tenant election2020 personal growth insulation mortgage rtaa2020 bad tenant travel bubble extractor fan Question and answer HHGA tenancy issues ventilation skill shortage p lab principal and interest mindset buying wealth creation airbnb meth rent opes partners RTAA 2019 warren buffett barfoot and thompson rental market letting fee maintenance LIM Must knows cat letting re agent buying rules housing package management holiday house auckland council Gluckman relationship early termination rental wof fixed-term tenancy investment strategy subdivision khh finance apia Editor's Choice housing bubble bond form trespass tax warm up new zealand RBNZ heat pump television bankruptcy interest rates lockdown Jeff Bezos landlord banking CoreLogic TCIT development CCC market rent arrears property cycle income water bill unitary plan positive cash flow renovation property management short-term rental short term rental worksafe HSWA parry v inglis Sponsored post ring-fencing property value reserve bank tenancy tribunal interest limitation Kris Pedersen Mortgages and Insurance business initio education Market report insurance capital gain yield brightline recycling equity Must know market rent rta privacy debt enforcement kiwibuild building bond Case study structure commerce commission Tribunal case study ask an expert rta reform house prices Investor story property maintenance equity quiet enjoyment daikin legal cost property trademe shower dome heating wins ocr termination Holler Guest blog speculator DTI minor dwelling asbestos retaliatory notice lvr negotiation Investment tip beginner investor covid-19 sublease buyer's agent partners twg report election 2017 interest deductibility gluckman report Landlording off the plan Property (Relationships) Act sale and purchas advice winz nzpif heater property apprentice damage tenancy services shortland chartered accountants rent control scotney williams watercare anti-social behaviour inflation

Archive

Introducing Our Partners
Principal Sponsor - Kris Pedersen Mortgages & Insurance logo Gold Sponsor - Barfoot & Thompson logo Gold Sponsor - CoreLogic logo Property Apprentice logo The Insulation Warehouse logo The Renovation Team logo The New Zealand Property Investors' Federation logo